Risky business?

Trims are possible but hazardous in F&amp;I department

The F&I departments in Conant Auto Retail Group's nine California stores use menu selling, says President Dave Conant. The practice ensures that customers are offered all products and get all required disclosures.

Sales of finance and insurance products contribute a sizable share of the typical auto dealership's profit. So cutting costs in F&I departments is a way for dealers to boost income, right?

Some dealers and dealership advisers say there are opportunities to trim F&I overhead. Others, though, are skeptical.

Standardizing processes, curbing payrolls and adding technology, mainly to reduce paperwork, are among the most promising moves, the cost-cutting advocates say. A few dealerships even have eliminated their F&I departments.

But Carl Ragsdale, vice president for dealer services at the National Automobile Dealers Association, preaches caution.

He says that F&I professionals generally are the dealership employees who explain the products to customers.

They also provide a growing array of disclosures, most of them required by federal and state governments, Ragsdale says.

The F&I department is not the first place to look to save money, he warns, because violations of disclosure rules can create far more costly legal headaches.

"Explaining the products is fairly technical," Ragsdale told Automotive News. "It takes a high degree of expertise and knowledge of all the statutory regulations and ethical requirements. So I don't see the F&I department as the area where dealers are able to reduce their expenses very much right now.

"Of all the departments, perhaps that is the one in this day and age that demands the highest-quality and most knowledgeable professionals."

More government rules make F&I operations more procedural, less ambiguous and almost scripted, Villegas argues. Some states cap dealer markups of interest rates for wholesale vehicle loans.

So, Villegas says, there is less reason for dealers to pay top salaries to F&I employees if - no matter how talented they are - they no longer have as many opportunities to boost dealership revenue dramatically.

"Do you need an F&I manager who makes $200,000 or $300,000?" he says. New limits "are putting the superstar manager in a box."

In short, Villegas says: Hire cheaper people.

Dave Conant is president of the nine-store Conant Auto Retail Group, which is recognized for its F&I successes. His group handles nearly 1,000 transactions a month.

Menus help

Conant says he believes in paying people well but demanding a lot from them.

He makes sure company employees handle the right tasks for their positions, he adds.

The Conant group calls its Norm Reeves Honda Superstore, of Cerritos, Calif., the world's largest Honda dealership.

It has an F&I director, 11 employees who deal with customers, two people who check creditworthiness records, one who does data entry, and one who performs a final "quality-control" check on documents.

His dealerships' F&I departments use menu selling, Conant adds. The practice ensures that customers are offered all products and get all required disclosures.

It also has provided a modest boost in revenue, he says.

Consultant Villegas says finance and insurance departments are making gains in cost-effective technology. For example, he says, they can get rate quotes by computer instead of "shopping contracts on the phone."

But the completely electronic transaction is not a practical reality yet, Conant notes.

Ragsdale of NADA agrees that new technology can be a money-saving help in F&I. But it is "not a quantum leap forward" so far, he adds.

Extreme: No F&I

Extreme Dodge-Hyundai, of Jackson, Mich., has found success by eliminating its F&I department. Wes Lutz, the dealership's owner, said he made the move a decade ago - not primarily to cut costs, but rather to satisfy customers.

Buyers complained that they didn't "want to talk to all those people" in the dealership, Lutz recalls.

Instead, a salesperson handles the entire purchase. Lutz calls it "the kinder and gentler" approach.

It requires a well-trained, stable sales force, Lutz says.

He adds that he hasn't lost a salesperson in years, a sharp contrast to the rapid turnover across the industry.

"It would not work for everyone," Lutz adds. "It works out fine for us."

Extreme Dodge-Hyundai is in a relatively small community and does lots of repeat business. It sells about 150 new and used vehicles a month.

And it is satisfied with $600 to $800 in profit per unit from F&I, rather than the $1,200 to $1,500 that some large dealership groups expect, Lutz says.

Dealership groups are standardizing operations in their stores to reduce the time customers spend shopping and buying, according to research.

That allows employees to handle more customers and builds customer satisfaction, researchers say.

But they also warn that efforts to bring greater efficiency to dealerships probably should not start in F&I departments.

Poor inventory management, mishandling of sales leads and service department errors are more urgent problems, they say.